Last updated:

Annual allowance statement FAQs

The term Annual Allowance (AA) refers to the growth in your NHS pension benefits (occupational defined benefit pension schemes) and/or your annual contributions to a defined contribution pension scheme like a personal pension that would attract tax relief. The Annual Allowance limit covers all pension savings (excluding your state pension) which build up in the Pension Input Period (PIP). The PIP is the period over which your pension growth is measured. The PIP for the NHS pension scheme is 6  April to 5 April each year. If you have other pension savings their growth will also need to be taken into consideration.

The Annual Allowance reduced from £255,000 to £50,000 on 6 April 2011. This threshold was further reduced from 6 April 2014 to £40,000. The standard AA remains £40,000, however from 6 April 2016 the limit can be reduced for higher earners (but to no lower than £10,000). The taper will apply if your threshold income (taxable income less pension contributions) is more than £110,000 and your adjusted income (adding on your pension growth) is more than £150,000.

Guidance on calculating threshold income and adjusted income

  • If your threshold income is above £110,000 and your adjusted income is below £150,000 you will be subject to the standard annual allowance.
  • If your threshold income is above £110,000 and your adjusted income is above £150,000 then your annual allowance will be reduced. For each £2 that your adjusted income exceeds £150,000, your annual allowance threshold is reduced by £1. If your adjusted income exceeds £210,000 then you will have a reduced annual allowance of £10,000 only. 
  • If your threshold income is under £110,000 you will not be subject to the taper irrespective of the level of adjusted income.
  • If the growth in your benefits in the NHS pension scheme exceeded the standard limit of £40,000 (either in one section or in combination if you have transitioned to the 2015 CARE scheme)  

HMRC tool to work out your tapered annual allowance

The pensions agencies are required to issue statements at the beginning of October relating to the previous tax year. Statements issued in October 2018 will relate to pension growth in the 2017/18 year.

Scheme members who are GPs can expect to receive a statement for the 2017/18 years in July 2019 following submission of the 2017/18 Certificate of Pensionable Profit/Type 2 forms. The NHS pension scheme will not necessarily know if you are subject to tapering and if you are subject to the taper you should request a statement.

This guidance on your Annual Allowance Statement should be read in conjunction with our Annual Allowance FAQ.     


What does your statement include?

The scheme will provide you with details of the current year's growth details as well as that of the three previous years as unused allowance in these years may be carried forward to offset any tax charge. The relevant limit will be detailed against each year (when the limit was previously greater). 


Pension input start date Pension input end  Annual allowance Pension input amount
. . .

What do the headings refer to?

  • Pension input start date indicates the beginning of the year being assessed
  • Pension input end date indicates the end of the year being assessed
  • Annual allowance details the actual or notional limit during the period
  • Pension input amount details the growth in NHS benefits during the PIP

Annual allowance pension savings statement guide - NHS Business Authority


How can I be sure that the values in the statement are correct?

If you are a hospital doctor in the 1995/2008 sections the benefits will be calculated with reference to your years of service (including any added years or additional pension) and your pensionable pay (this figure will have been provided by your employer. You may wish to query this if you have received lump sum arrears for pay awards, increments or CEA which were paid in the current year but should have been paid in a previous year). You can request details of your service record and a breakdown of the calculations from the scheme administrator. These need to be checked as they form the basis of the calculation of pensions growth.   

If you are a GP in the 1995/2008 sections the benefits will be calculated with reference to your earnings (after allowing for inflation proofing) and will include any added years or additional pension purchased. You can request details of your dynamising sheet (a record of GP earnings) and a breakdown of the calculations from the scheme administrator. These need to be checked as they form the basis of the calculations of pension growth. You may require the assistance of your accountant to verify the figures.

If you are a member of the 2015 Career Average Revalued Earnings (CARE) Scheme your benefits in the 2015 CARE scheme will be calculated with reference to each years pensionable earnings. However, as long as you do not have a break in pensionable service of five years or more, any benefits in the 1995/2008 will continue to provide benefits linked to current pensionable pay (hospital doctors) or in line with the consumer prices index plus 1.5% (GPs). Once you have had a break in pensionable service of five years or more the ‘final salary’ link is broken in relation to your 1995/2008 benefits and your 2015 CARE benefits will only receive active revaluation in respect of service since the break. 

Read guidance on the method for calculating pension growth


I believe that the statement is incorrect. Can I request a revised one?

Yes. If you believe that the statement is incorrect you can ask for details of the service and pay on which it has been based. If this proves the statement to be wrong you can request another one based on your correct details. The deadlines for decisions on scheme pays versus tax return for paying any annual allowance charge will not necessarily be extended to allow for this.      


I have received a backdated pay award.  How is this treated in relation to the calculation of my pensionable pay?

According to HMRC guidance, if you have received a backdated/late pay award, for the purposes of the AA calculation, the increase will count in the year it is paid.  Only genuine errors (e.g. payroll identifying an underpayment in your agreed pay and correcting it at a later date) can be allocated to the year(s) in which they should have been paid. In practice, NHSBA (England and Wales) will allocate increases to the appropriate year if advised accordingly by the employer.


I have exceeded the limit. What happens now?

You will only need to pay additional tax if you have insufficient carry forward allowance to offset the excess over the limit from the three previous tax years. You are able to carry forward any unused allowances from the three preceding years to offset the excess. 


Even after using carry forward I still have an excess. How is the Annual Allowance tax charge applied?   

You need to add the excess amount to your taxable income and you will pay tax at your marginal rate.


How do I pay the tax charge?

There are two choices as to how the AA charge can be paid:

  • If the tax charge is greater than £2,000 you can opt for the Scheme Pays method of repayment
  • In all cases you can pay the charge through the completion of a self-assessment tax return

Members in Scotland are able to use scheme pays where their excess growth is above their individual tapered limit but not necessarily above the standard £40,000 limit and the above conditions are met. Members in England and Wales and Northern Ireland can only use scheme pays if their excess is above the standard limit of £40,000 and the above conditions are met. 


What is Scheme Pays?

Where the excess is greater than £2,000 you can elect for the scheme to pay the charge on your behalf.  This election needs to have been received by the scheme administrator by 31 July following the January in which the AA charge must be declared on the tax return (e.g. 31 July 2019 for the 2017-18 PIP).

Electing for the scheme to pay the charge will result in a reduction to your pension at retirement (and also to the lump sum for 1995 section members). The scheme actuary will apply interest at Consumer Prices Index (CPI) plus 3% on the amount paid.  This interest is calculated from the January after the receipt of the scheme pays election until retirement. The actual reduction to then be applied to your benefits will depend on when and why you retire.  


Will electing to pay the charge by Scheme Pays affect the benefits payable to my dependants?

No. The benefits payable to your dependants will be unaffected and will be based on your accrued benefits before making any reduction for scheme pays.


Will electing to pay the charge by Scheme Pays affect the capital value of my benefits to be tested against the Lifetime Allowance?

Yes. The capital value of your NHS benefits will be calculated with reference to the reduced benefits payable to you after allowing for the scheme pays selection.


Can I use the Scheme Pays mechanism more than once if I am subject to an Annual Allowance charge in future years?

Yes. Care should be taken that the level of benefits payable in retirement will still meet your financial needs.


How do I pay the charge via a tax return?

Whether you usually complete a self-assessment tax return or not you will need to obtain one and complete the additional Information pages detailing the amount of charge due.  This amount will then be added to your taxable income and be taxed at the appropriate marginal rates of tax. 

A guide to the completion of this section of the tax return can be found on the HMRC website. (PDF)


Can I change my mind if I elected for Scheme Pays but no longer wish to do this?

Once the scheme administrator has received the request it cannot be withdrawn unless the reason for doing so is because there was an error in the statement (e.g. you do not have an excess of £2,000 or more). The amount payable in this instance could be amended or the decision revoked if it resulted from an incorrect statement.  The time limit for amending the amount payable by Scheme pays is a period of 4 years from the end of the tax year to which the AA charge relates.


What happens if it turns out that I have paid an AA charge in error, via my tax return?

HMRC has indicated that if you discover an overpayment, you can amend your self assessment return within 12 months of the statutory filing date. For this amendment purpose, the statutory filing date is 31 January following the end of the tax year or 3 months from receipt of a ‘Notice to File’ by the taxpayer (if it is a late issue), whichever is the later. Where this time limit has lapsed, you might be able to make a claim for ‘overpayment relief’ and the time limit for this is 4 years from the end of the relevant tax year.


What happens if it turns out that I have paid an AA charge in error, via the Scheme Pays mechanism?

If you elected for scheme pays and subsequently discover you did not have an annual allowance charge then the election will be void. Nothing will have been deducted from your pension as this would only have taken place at retirement had a valid election been in place.


I am a deferred scheme member. Do the Annual Allowance rules affect me?

If you have been deferred through the entirety of a pension input period (1 April to 31 March in relation to the NHS) then the Annual Allowance rules will not apply to you. If you have only been deferred for part of an input period then the rules will apply for the period of active membership.

Even where you have been deferred for a full input period you continue to have carry forward for that year to use against future growth (assuming it falls to be carried forward as part of the last three years).


Does HMRC provide any protection against the reduction to the Annual Allowance?

No. Unlike the protections offered in relation to the Lifetime Allowance (Primary, Enhanced, Fixed or Individual protections) none are available in relation to the Annual Allowance.


Will I be provided with an Annual Allowance statement at the time of my retirement?

No.  The statement will be issued in October as usual which will mean that if you are subject to a charge you will only be able to pay it by self assessment.  Scheme Pays can only be selected prior to retirement.  If you believe you will be subject to a charge in the year of retirement and you would prefer to pay the charge by Scheme Pays you will need to request a statement ahead of your intended retirement.
Read the HMRC helpsheet about this (PDF)

However if you retire early on the grounds of permanent ill health and you are not exempt from an AA tax charge due to severe ill health you will usually be sent an AA pension saving statement and advised of the scheme pays options.